Geothermal Transmission 101

Among renewable resources, one of the most valuable attributes of
geothermal electricity is the baseload characteristic of the
energy resource. That is, geothermal electricity generators are
able to deliver a stable level of power production over time. Yet
for better or worse, this baseload characteristic—along with other
notable factors such as size constraints and varying market
segments—reveals that interconnecting a geothermal plant to a
transmission or distribution system poses unique challenges
compared to other renewable energy technologies [1].

A recent report by NREL, "Geothermal
Power and Interconnection: The Economics of Getting to the
Market," delves into the specialized world of geothermal
transmission. Among other things, this report finds that from a
transmission perspective, not all types of geothermal energy
technologies are treated equally. Conventional hydrothermal
technologies likely fit differently into the transmission
framework than do emerging geothermal technologies such as
enhanced geothermal systems (EGS), co-produced geothermal with oil
and gas facilities and geopressured geothermal.

Table 1 shows three geothermal technologies and the corresponding
market segment they serve. It also describes how particular
attributes of each technology present challenges to connecting to
the grid and how they may be considered in long term system
planning.

For example, due to their large project size and their proven
commercial viability, hydrothermal geothermal technologies offer a
wide range of transmission options; the electricity produced by
the plants can serve either local grid networks or be exported to
other networks (referred to as balancing authorities, "BA," in
Table 1). The report's author suggests that until they are proven,
emerging technologies such as EGS are best utilized serving their
home network, but if successful, electricity from these new
technologies could eventually be transmitted to other networks as
well. Meanwhile, co-produced and geopressured geothermal are
likely restricted to distributed generation applications due to
remote project locations, large electrical demand of the oil or
gas facilities, and relatively small generation capacities (i.e.,
less than 5 MW).

The author also finds that there are several emerging markets in
the Western United States where there is expected to be a
near-term need for new baseload generation. These markets are
largely where coal plants are expected to be taken offline in the
next 5-10 years. It is estimated that there will be more
than 3,000 MW of new baseload opportunities that will emerge from
diminished coal usage across the Western United States [1].
While some of these resources will be replaced with other forms of
fossil fuel electricity generation such as natural gas, there is
likely enough of a need to also elicit interest from geothermal
developers.

The report also shows what the author succinctly describes as
"The Uphill Economics of New Transmission." Generally, the
cost of new transmission is determined by how much electricity the
new line caries. Due to economies of scale, a MW of carrying
capability on a large transmission line is cheaper than a MW of
carrying capability on a smaller line. Figure 1 shows the
cost of transmission per megawatt served over various transmission
line sizes.

Figure 1. Total Line and Substation Costs
per Megawatt of Transmission Capability. Source: [1]

Given that most U.S. geothermal plants are less than 80 megawatts
in capacity, they are relatively small energy generators compared
to other baseload electricity sources such as coal or natural gas
power plants. Without economies of scale, new transmission
for commercially available hydrothermal geothermal is a
significant challenge, and in practice, drives even proven
hydrothermal geothermal development into areas with existing, but
underutilized transmission in place [1].

As each of these geothermal technologies offers the benefit of a
stable electricity generation profile, there is likely to be a
demand for the energy they produce. However, the role geothermal
energy will play in long term transmission planning remains to be
seen.

Paul Schwabe is an Energy Analyst with the National Renewable
Energy Laboratory’s project finance team and has significant
expertise in wind and geothermal projects. He has over 10 years
of experience in the energy industry, including electricity
market analysis, natural gas forecasting, and financial
modeling.

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Two weeks ago TerraForm Global, Inc. filed yet another amendment to
its S-1 registration statement as the SunEdison, Inc. (SUNE:
NYSE) spinout grinds forward with its initial public offering.
TerraForm is a collection of SunEdison’s renewable energy
properties, primarily its solar, wind and hydro-electric power
generation facilities around the world. The current portfolio
sums up to over 1,400 megawatts in total generating capacity, of
which over 900 are spoken for through power purchase commitments
that cover the next 19 years. On a pro forma
basis, the assets produced $298.9 million in total revenue,
providing $44.1 million in net income.

This will be SunEdison’s second spinout of renewable assets. TerraForm
Power, Inc. (TERP:
NYSE) was spun out of SunEdison a year ago, gaining 48% from its IPO
price of 25%. Even at its present elevated price, the stock
offers a dividend yield of 3.3%. The success of SunEdison’s
first ‘yieldco’ is likely to influence the pricing and trading of
the international properties now up for grabs if the SEC can be
appeased.

SunEdison has been the premier acquirer of renewable energy
projects. Its reputation precedes it, opening doors and
priming negotiations. A central point of the case for
Terraform Global is the existence of over 600 gigawatts of power
generating capacity that the company apparently considers fair game
for adding to the portfolio. Seven acquisitions are already in
the pipeline, representing 921.7 megawatts of generating
capacity.

SunEdison is projecting 32% compound annual growth over the next
five years for Terraform Global and expects to have $231 million in
cash available to distribute as a dividend in 2016. Projecting
cash generation in the next year is relatively easy given all those
power purchase agreements that lock in sales levels and
pricing. However, in predicting high double digit growth for
the next five years, SunEdison could be out on the proverbial limb.

Indeed, with big numbers like 32% growth etched into the prospectus,
do not be surprised if Terraform Global debuts at a health multiple
of earnings - a multiple that might be sustainable if
growth fails to materialize. Thus it might be wise to wait for
the stock to mature a few weeks before jumping into long
positions. I note that the ‘big sister’ Terraform Power closed
near $32.00 on its first day of trading, but within three months had
skidded below its offering price. This presented an
interesting window of opportunity to access shares at compelling
prices. It will be worthwhile watching this new IPO for
similar developments.
Debra Fiakas is the Managing Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
industries.

Neither the author of the Small Cap
Strategist web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.

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